When Machines Rule The World

When Machines Rule The World
FILE - In this Tuesday, Aug. 23, 2011 file photo, Bank of America Merrill Lynch traders work on the floor of the New York Stock Exchange in New York. There are fewer and fewer traders on the NYSE floor because of the dominance of computer trading of securities - including the high-frequency trading that can take advantage of price changes in a millisecond. Bank of America is the stock of the moment for high-frequency trading; investors use computer algorithms to exploit small changes in a stock's price. If a computer can seize on a stock like Bank of America a fraction of a second faster than the rest of the market, it can book a tiny profit. (AP Photo/Henny Ray Abrams)
FILE - In this Tuesday, Aug. 23, 2011 file photo, Bank of America Merrill Lynch traders work on the floor of the New York Stock Exchange in New York. There are fewer and fewer traders on the NYSE floor because of the dominance of computer trading of securities - including the high-frequency trading that can take advantage of price changes in a millisecond. Bank of America is the stock of the moment for high-frequency trading; investors use computer algorithms to exploit small changes in a stock's price. If a computer can seize on a stock like Bank of America a fraction of a second faster than the rest of the market, it can book a tiny profit. (AP Photo/Henny Ray Abrams)

Stock markets are supposed to be efficient. Rational actors continually process data in a methodical way and spit out the appropriate price. But today, the market is increasingly peopled by machines–algorithms, programs, trading bots, and high-frequency traders swapping large and small bits of stock at an insanely rapid pace. High-frequency trading accounts for about half the volume on U.S. stock exchanges. And in recent years, we’ve learned that dispassionate machines and software can act in ways that seem highly irrational.

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